Friday, December 6, 2013

I was glad to come across the
news that Shri. Kapil Sibal, Union Minister for Communications & I.T. has
joined Twitter. It is good that India’s
political class is slowly but surely taking to the Social Media. This will help
the political class and the citizenry to engage fruitfully with each other and
bridge the gap between the two. Whether Shri. Sibal likes it or not, his name
has been permanently etched in public memory with the Zero Loss Theory. Soon after
Shri Sibal came on board, he was confronted with a question on the same: “Sir,
please explain the zero loss theory in 140 characters” said a tweet. To this,
Shri Sibal replied with the following: “Expenditure – Earnings = Loss, if
expenditure is greater than earnings. Have you calculated earnings to calculate
loss?”

One may recall that Shri. Chidambaram,
the Union Minister of Finance also made a similar statement in the Coal Scam
discussion. “…if the coal has not been mined, if coal remains buried in Mother Earth,
where is the loss?” he was widely reported to have said. What Shri Sibal or
Shri Chidambaram were saying is that since the beneficiaries of the alleged largesse
have not monetized the giveaway, the spectrum or the coal mine, there is no
loss.

In other words, if your car is stolen, there is no loss until the thief
sells the car.

When put this way, the defect in the
Zero Loss Theory becomes immediately apparent.

There is another related argument
that is often made that needs to be demolished. It goes like this – ‘since
government is not a profit making entity, assets need not always be sold to the
highest bidder. Cheap spectrum can make cheap telephony available to the
masses, and cheap coal can provide cheap electricity.’ This line of argument has
even been made by the Prime Minister himself in the past. How far is this thinking
valid?

The government owns nothing. It
is a Trustee of the assets that belong to the citizens. Every sale of an asset
below market price is a loss to the citizens and a net gain to the new asset
owner. Once the asset is sold, neither the government nor its people control
what the asset owner does with it. Hence selling assets cheap “in public
interest” only results in losses that are certain and upfront, while the
supposed benefits remain uncertain and in the future. The fallacy of this
approach has been amply demonstrated in both the 2G and the Coal Scams.

Does this mean the government
should always maximize revenue and profits?

No. Here, one needs to
distinguish between selling assets and providing services. For example, the
Railways can justifiably run at a loss – anyone
who buys a ticket can benefit from the subsidy. The benefits cannot be
monopolized. The assets remain with the government while the public benefit
from the services. But the same cannot be said about selling spectrum or a coal
mine, where neither the government nor the people can control what the
asset owner does once the ownership is transferred. However, many a times this crucial
point is missed.

I have not checked how many
followers Shri. Sibal has acquired over Twitter. Does that mean he has Zero
followers. Or does he, really?